Banking

Commercial banks are likely to be allowed to include their investments in corporate bonds as high-quality liquid asset under liquidity-coverage ratio (LCR) of Basel-III framework.

Bangladesh Bank (BB) made such observations Tuesday at a coordination meeting of major watchdog bodies, namely the Bangladesh Securities and Exchange Commission (BSEC), the Office of the Registrar of Joint Stock Companies and Firms, the Insurance Development and Regulatory Authority (IDRA), the Micro-credit Regulatory Authority (MRA), the Department of Cooperatives (DoC) and Bangladesh Telecommunication Regulatory Commission (BTRC).

At the meeting, held at the BB headquarters, the BSEC requested the central bank to allow the banks to comply with the BB's statutory liquidity ratio (SLR) requirement with their investment in the corporate bonds, as a way of stimulating the capital market.

The central bank failed to agree with the proposal, placed at the meeting, presided over by BB Governor Fazle Kabir.

To justify the refusal, according to officials, the central bank said only the approved securities are eligible for meeting the SLR obligation to the BB.

The approved securities are usually treasury bills (T-bills), bonds and other securities whose principal and interest are guaranteed by the government and also include BB'a own securities

Rather, the BB expressed its willingness to consider such bonds as high- quality liquid asset but their eligibility will be positively examined by the departments concerned of the central bank, they added.

"We may allow the corporate bonds as high-quality liquid asset under LCR of Basel-III framework after examining its different aspects," SK Sur Chowdhury, deputy governor of the BB, told the FE after the meeting.

They said BB is expected to finalise the draft within this month. Thereafter, it will be sent to the Ministry of Law, Justice and Parliamentary Affairs for placing before Parliament for approval.

Movable property like goods, a document of title, security, instrument, money or any other intangible asset like goodwill will be regarded as collateral after enactment of the law in the making.

These are not accepted now in the financial sector as security for loans. Currently, only the immovable like house or flats, land property are accepted by banks and financial institutions as collateral.

People familiar with the latest move at the central bank told the FE that this would promote economic activities in the country, and reduce the dependence of lending institutions on immovables as security for credit facilities.

This innovation is being financed by Japanese aid-agency JICA under a project named 'secured lending and movable collateral reform in Bangladesh'.

A senior person familiar with the developments at the central bank told the FE that they were expecting to finalise the draft by August 30.

A senior official at the Ministry of Finance (MoF) said this initiative is intended to help small and medium entrepreneurs and those engaged in self-employment who are unable to furnish immovable property as security against credits.

"SMEs, even startups, may be benefited as their access to the formal credits will rise," said a senior official at the MoF.

However, a high-powered monitoring team will meet on the matter at the MoF on August 29.

Bankers view that this is a piece of good news for them as it will help expand the volume of credits as the banking system now rolls in "excess liquidity".

They also hope this will bring dynamism in the business sectors as well the economy as many will have access to loans based on such property which the banking system has so far ignored as collateral. Managing Director & CEO of Mutual Trust Bank Ltd (MTB) Anis A. Khan said: "We welcome this type of initiative as it brings dynamism in the economy."

He also sees nothing wrong in it. Many will get loans for further investment in business and it will help widen the base of collateral.

"The higher security, the higher loans," he told The Financial Express.

Mr Khan, also chairman of the Association of Bankers, Bangladesh Limited (ABB), said many will be even able to get loans against their motorised vehicles.

"It will have spillover impact on the economy. The insurance sector will also get some sort of business."

Another banker, Md Nurul Amin, managing director and CEO at Meghna Bank, said they had long felt the necessity of such arrangements.

"Such type of collateral exists in many countries, even in Sri Lanka," he said as an example to justify this initiative towards diversifying collateral.

Mr Amin, however, sees some risks of such type of security, such as the owners of such property may sell those to other parties and thus cause a problem to the lending banks.

"Suppose, a person gave his vehicles as collateral to a bank and he could sell it to other people, and in such cases bank may face problems."

Similarly, he added, the owners of factories may sell their machinery out to others.

However, there will be a separate entity paving the way for people to borrow by using such moveable property as security under the act.

The institution will help lenders get a risk-free picture of the security to accept movable property as collateral for advances.

The oversights body will be established under the name 'Secured Transaction Registration Authority'.

The main objective of the authority will be to promote the interests of the national economy by facilitating secure transaction against movable property in compliance with the provisions of the act.

The governor of Bangladesh Bank will be chairman of its board or a person nominated by him as his representative will work in the entity.

Under the law, the MoF secretary or a person to be nominated by him will stand as second in authority at the Authority. A registrar will also need to be appointed, according to the draft act.

The draft also states a designated person from Bangladesh Securities and Exchange Commission will also be on the board.

The main function of the board is to ensure registration of security rights of movable property.

The board of directors of Agrani Bank now wants to keep running its loss-making money exchange house in Canada, for which it earlier received regulatory approval to shut it down.

Since its inception in 2014, the Agrani Remittance House Canada incurred a loss of $308,448 and brought in $3.5 million in remittance to Bangladesh.

The banking regulator gave go-ahead when the bank wanted to close operation of the exchange house in June last year.

The BB then said the bank established the exchange house without conducting a feasibility study and wasted a huge amount of foreign currency.

The bank was then strictly warned for taking such an unwise decision. But, now the bank is repeatedly seeking extension of the exchange house's activities for a year. The regulator rejected Agrani's proposal for the third time last month.

Agrani is trying to continue operation of the exchange house due to the demand of Bangladeshi expatriates living in Canada, said Mohammad Shams-Ul Islam, managing director of the bank.

“We took various measures to reduce the expenditure of the exchange house, and the remittance inflow through the branch has gradually been improving,” Islam said. “It is our last attempt to keep Bangladesh's flag hoisted in Canada.”

The bank received BB's consent to open the exchange house in 2012 and started its operation in June 2014. The bank has so far invested around $680,000 to establish the exchange house, according to the BB report.

Due to the high expenditure, the exchange house made a loss of $153,000 in the first year of its operation in 2014 although it brought in around $564,000 in remittance.

In 2015, the amount of loss decreased to around $100,000 although the branch channelled around $1.5 million in remittance into Bangladesh.

In 2016, the bank managed to minimise the loss to $60,704 while the remittance through the exchange house touched around $1.5 million, according to Agrani data.

Canada was the 20th top remittance sending country for Bangladesh in 2015-16. Bangladesh received $55.10 million in remittance from Canada, 2.79 percent of which came through the exchange house.

The remittance inflow from Canada decreased by 10 percent year-on-year to $49.54 million in 2016-17, according to the central bank data. Currently, Exim Bank has a money exchange house in Canada and has remittance drawing arrangement with seven money exchange houses of the country.

Agrani fell in a capital shortfall of Tk 442.63 crore in March this year from a surplus of Tk 46.56 crore in December last year, central bank data shows.

The classified loan of the bank also increased to 25.83 percent from 25.44 percent during the same period. The bank made a net profit of Tk 59.56 crore in March this year.

The bank has 935 branches across Bangladesh. Of them, 78 counted loss in 2016 while the number was 16 in the previous year.

Staff at the Bank of England began a three-day strike Tuesday, the first at Britain's central bank in more than 50 years, as part of a dispute over pay. Employees from the maintenance, security and frontline hospitality departments walked out over what the Unite union said was a "derisory", below-inflation pay offer for the second year running.

Union official Peter Kavanagh urged the governor of the bank to personally intervene in the dispute, threatening to escalate the industrial action if there was no breakthrough.

"Mark Carney should come to the picket lines outside this iconic British bank today and explain why hardworking men and women deserve to face years of pay cuts," Kavanagh said.

City Bank's net profit fell 5.3 percent year-on-year to nearly Tk 191 crore in the first half of 2017, the first generation lender said yesterday.

The bank's earnings per share went down to Tk 2.18 in January-June from Tk 2.30 in the same period a year earlier.

Sohail RK Hussain, managing director of City Bank, disclosed the performance of the bank at a media briefing at its headquarters in Dhaka.

In the first six months, its loan portfolio grew 15.2 percent and deposits 19.1 percent while trade volume also increased by 20 percent.

City Bank shares have witnessed an upward trend in the last several days, ending at Tk 42.30 yesterday.

In fact, its stocks have remained buoyant since March this year when it received nod to sell 5 percent of its shares to the International Finance Corporation, the private sector lending arm of the World Bank Group.

The IFC bought a City Bank share at Tk 28.3, including Tk 18.3 as premium.

Mahbubur Rahman, chief financial officer of City Bank, gave an overview of the recent financial performance of the lender during the programme.

Most banks have reported higher half-yearly profits this year riding on an increased business activity amid a stable political situation and a boost in investors' confidence.